Archive for January, 2010

I liked eBay’s Best Offer feature when it came out. Best Offer is a way for buyers to offer a lower price on a sale that employs on a fixed price auction, where the seller sets his own price for the item’s listing. Best Offer provides a way for buyers and sellers to negotiate and exchange information in a way that neither may want to do publicly. The seller can then counteroffer a lower price to the buyer without ruining his profit opportunity if he has multiple items. The buyer can suggest that the seller’s price is too high given prevailing auction trends and the seller can tell the buyer that his cost is X with the eBay and PayPal fees, so the lowest he can go is X + Y.

They can also, frankly, communicate with one another about the deal in spite of eBay’s draconian prohibitions or restrictions on buyer-seller communication otherwise.

But, like all eBay features, the usability comes with a crippling price. While the Best Offer does likely promote more sales, thereby generating happiness and revenue for the sellers, buyers and eBay, it also cripples the ability for sellers and buyers to efficiently revoke those offers and counteroffers before acceptance has occurred. In fact, once an offer (counteroffer) is made, the offeror cannot revoke his own offer for 48 hours. At that point, the offer necessarily expires anyway. So, on one hand, if the offeror decides that his stated price is incorrect (either too high or too low), he can’t change it. What if the buyer offers a price that he would like to raise to entice a faster sale? What if he realizes the price he offered is too high? eBay does make exceptions for obvious mistakes (offering $999 instead of $99), but what if as part of the negotiation process, either party wants to change the offer before the currently offered price has been accepted? He can’t.

On the other hand, if the offeror decides that he would like to keep his price open for longer than 48 hours, because he would like to give the offeree a little more time to say yes, he can’t do that either.

I appreciate that eBay sets some sort of time limit on the offer, particularly since the offer is irrevocable until expiration, but why not allow the offeror a default expiration and allow him to change that while also allowing him to revoke the offer at any time before acceptance?

Fundamental contract law provides that the offeror can revoke his offer any time before the offeree accepts the offer, but once the offer is accepted, there is a binding contract (assuming there is an exchange on both sides, i.e. money for an item, bartering, etc.). eBay flouts the first part of this basic notion by preventing either party from revoking his own offer and by forcing the expiration at a certain time.

In a way, eBay is importing its notions (legal and philosophical) regarding auctions to fixed price sales. For instance, legally, once a bidder bids in a bona fide auction, assuming there is no minimum price that must be attained before the seller is obligated to sell, the seller is legally and ethically bound to sell to that bidder until a higher one comes along, so on and so forth until the highest bidder has won the auction. From a contract theory perspective, the offeror has impliedly stated, “I will sell this item to whomever of you bids the highest.” As soon as there is a bid, the offeror has had his offer accepted. It is the offeree (now the acceptor) who can have his own acceptance superseded by another offeree. But the offeror (seller) is bound by his words which have been agreed to.

With a fixed price auction, the same rules need not apply, because the seller is offering one price. If a buyer comes along and counteroffers another price, why should the buyer be locked into that counteroffer? He’s not auctioning something. Whether or not another buyer can counteroffer something better is immaterial. The offer itself in a fixed price sale, just like the ones you find whenever you walk into a retail store, is inherently different from an auction, which relies on the binding of the seller and the competition between buyers. In a typical fixed price sale, there may certainly be competition between buyers for a limited number of items, but the offeror has not bound himself to selling to the highest bidder.

Nevertheless, eBay transmogrifies a fixed price sale into something that acts like an auction, for no reason other than it establishes control for eBay. Maybe it was easier to program the software to handle the transaction, but in any case, it is a suboptimal solution. If the buyer and seller aren’t free to walk away from the sale, then it is harmful to the marketplace.

What if the buyer finds the same or substantially similar item from a different buyer, as is often the case on eBay? Why shouldn’t he be able to cancel his offer to purchase at a lower price – so long as the seller has not accepted it yet – so that he can find a better price elsewhere? Why shouldn’t the seller be able to cancel the counteroffer to sell at a particular price – so long as the buyer has not accepted it yet – so that he may find a more willing buyer? In the case of small inventories, perhaps the seller was is to sell the item locally in person to someone else and wants to cancel the offer.

In either case, from a philosophical standpoint, eBay is choosing to restrict the freedom of the parties to choose how they enter into contracts. From a practical perspective, eBay is actually harming commerce, because if either party wants to revoke his offer, he usually has a good economic reason to do so, whether it comes down to a better deal elsewhere or the buyer’s realization that he doesn’t want to take this product or a situation where the seller can sell the item to someone locally. In all these cases, the better opportunities (the bird in the hand) may evaporate before the offer expires or the other person chooses to reject it; eBay is requiring the conversation to go on longer than either party would like, perhaps for so-called reasons of fairness (2 birds in the bush).

eBay places more obligations on both parties than the law would, for reasons that are unclear to me. I’m not suggesting that eBay cannot contract with its users as the marketplace to set and enforce certain rules about the way contracts/purchases/auctions are to be conducted on their own website (property). I’m suggesting that what it is doing is inefficient and not the correct or optimal way to conduct a fixed price “auction” or sale. I’m also not stating that eBay should allow shill counteroffers from the seller so that he makes offers that he cannot possibly fulfill: if eBay wants to restrict a seller selling three items to only have three extant counteroffers on the table with three buyers at any one time, that’s reasonable: it fulfills the expectations of reasonable buyers and prevents eBay from suffering a bad reputation by sellers who are acting in a way that will guarantee they violate contracts. But the seller should be able to revoke one of those counteroffers to sell one of his items to a new buyer if it makes economic sense.

Currently I have two items for sale that are locked in a counteroffer black hole since the buyers have not rejected them yet and 48 hours have not expired. It turns out I would like to give one of those items away to a loved one, but I cannot, because to do so would be to possibly violate a contract that may get formed by the buyer (counter-offeree) if he chooses to accept my counteroffer before expiration. So, now I’m stuck not able to give the item away as I would like, because eBay will not allow me to revoke the counteroffer as the law would.

To be clear, assuming that I could revoke these Best Offers, but assuming I had not, if a buyer had accepted one, a contract would be in place. I would honor the contract. But now eBay is forcing me, if I want to use their system (which is one of the few ways I can expand my market beyond my small town), to keep an offer open longer than is economically efficient or optimal.

Skribit is a cute little app (see the right side of this blog page) that allows your readers to suggest topics for posts. If you have an audience large enough, the suggestions can be very worthwhile, because they allow you to keep your pulse on what your readers may want you to opine about.

Plus, the founders are cool guys; I’ve corresponded with one of them, Paul Stamatiou, once, and he struck me as bright, helpful and very down-to-earth, yet enthusiastic.